The Pain of Rain

This note was originally published
at 8am on December 21, 2010.
INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK
(published by 8am every trading day)
and PORTFOLIO IDEAS in real-time.

“One can find so many pains when the rain is falling.”

-John Steinbeck

Timing is everything in life. As it relates to my current trip to Southern California, my timing couldn’t have been worse. I took a few hours away from the screens yesterday to finish up my Christmas shopping and a number of local business people informed me that this was one of the rainiest weeks Los Angeles had seen in, well, a really long time.

Today Keith is off to his hometown of Thunder Bay, Ontario with his wife and little ones, Jack (already a heck of an ice skater at only three years old) and Callie. Tomorrow I’ll head to my hometown, the small Alberta prairie outpost of Bassano, Alberta (total population of 1,200 and 75 some dogs). I think both of us, like many of you I’m sure, will take the next week to relax and begin planning for 2011. Much to the Steinbeck quote above, as I contemplate the future on this dark wet California morning, I do see a few pains.

While Steinbeck is most known for his literary career which culminated in the Nobel Prize for literature in 1962, he also knew a thing or two about state and local finances in California. In fact, his father was the long serving Treasurer of Monterey County.

California has become the poster child for one of the key potential pain points heading into 2011, that of municipal debt and deficits. We recently shorted municipal bonds in our Virtual Portfolio via the etf, MUB. While clearly not all municipal bonds are created equally, the general short case for the municipal bond market is as follows:

1. Rates are going higher – We’ve obviously already seen this over the last 30-days, but as the Fed is unable to keep the long end of the curve down, bonds will continue to suffer, especially as inflation expectations accelerate. Rates, obviously, have much more room to the upside from these historically low levels.

2. Housing prices have more downside – We are bearish on housing prices to the tune that we think home prices have 15 – 30% more downside nationally. Since appraisals for tax purposes operate on a 2 – 3 year lag to market prices, municipalities will begin collecting taxes based on dramatically declining home prices, which should hurt their tax receipts. Real estate taxes are the single largest revenue source for local governments. In the Chart of the Day, we show the Case-Shiller index versus property tax receipts.

3. State deficits set to expand – Currently, state level revenue is 12% below pre-recession levels, which is substantially worse than the revenue recovery in the past three recessions going back to the 1980 – 81 recession. This pain is likely to intensify, with States facing a $140 billion budget gap in fiscal 2011, according to the Center of Budget and Policy Priorities.

This is obviously the cliff notes version of our body of work on the municipal market, so if are a subscriber or prospective subscriber and would like more information, or to set up a call to discuss this topic with us, please email our Head of Sales Jen Ken at sales@hedgeye.com.

While Steinbeck has become one of America’s most lauded authors, he was also, while alive, one of its most controversial. He had left leaning politics and was long suspected to have ties to the Communist Party. In fact, perhaps his greatest work, The Grapes of Wrath, which is considered by almost all as one of the top ten English language novels of the last century, was originally harshly critiqued because it was deemed to be too pro-worker and overly critical of capitalism.

In addition to his full-time career of writing, Steinbeck was also a very active traveler. In 1947, he travelled to the Soviet Union with noted photographer Robert Capa. They were two of the first Westerners to visit the Soviet Union after the Communist Revolution. The output of this trip was A Russian Journal, which describe the harsh living conditions in the Soviet Union.

Since Steinbeck’s visit almost 60-years ago, much has changed in the former Soviet Union. While the transition to a fully functioning democracy in the vein of the West is still a work in progress, the introduction of capitalistic ways has certainly benefitted Russia, particularly as it relates to its vast natural resources. Due to modern reinvestment and the opening of her oil fields, since 1999 Russian oil production has increased 62%, or 3.5MM barrels per day, while total global oil production has only increased 10.5%, or 7.6MM barrels per day. The Russians are taking market share.

Despite the pain we see in municipal debt markets headed into 2011, we do have some great long ideas. As it relates to the Russian oil theme above, one of our favorite long ideas is Lukoil (LUKOY). According to our Energy Sector Head Lou Gagliardi:

“Although labeled a National Oil Company (NOC), Lukoil is 100% publicly owned. But, geopolitical risk, the Russian economy, a weak global economy and energy demand, and an onerous export tax duty have all weighted heavily on Lukoil’s share price in 2010 widening its market price discount to its discounted cash flow valuation further to 50%.

Historically NOCs trade at a discount to cash flow valuations and Lukoil’s historical discount has been in the 30% range. We believe its market discount will narrow reverting to the mean in 2011 driven by several catalysts. Lukoil’s high oil production weighting of 87% levers its share price to higher crude prices; its long-lived reserves, its expanding production profile internationally, and its growing crude oil production profile of ~2% per annum will contribute to significant earnings growth in 2011.

Lukoil’s balance sheet is strong with a debt to capital ratio of ~16% and a net of cash ratio at ~12%, as the Company is living within its capital spending. At $85.00 crude oil in 2011, we expect Lukoil to easily beat consensus with a ~25% E.P.S increase from 2010 to $14.75/ADR. For 2011, NCF at $85/bbl is targeted at $8.4 billion, or $10.12/ADR. At $89.00/bbl, earnings would jump 35% from prior year to nearly $16.00/ADR, adding roughly another $1 B in NCF.”

To put it simply: Lukoil is cheap, growing, has deep reserves, and a pristine balance sheet.

While the outlook does seem a little cloudy and rainy, there are plenty of Lukoil type opportunities out on the horizon. Moreover, as another well know American literary figure Dolly Parton once sang:

“The way I see it, if you want the rainbow, you gotta put up with the rain.”

DARDEN – RED LOBSTER CUSTOMER IS "GONE FISHIN’"

Conclusion: Darden continues to deliver from an earnings perspective and management is not raising any red flags. With respect to Red Lobster, there are structural issues that need to be addressed.

Darden’s earnings call brought few surprises to the fore this morning with management reaffirming their long-term EPS guidance within their 10-15% growth range. This is based on a long-term same restaurant sales growth target of 2-4%. Currently, for FY11, the company is trending at or above the higher end of the longer term EPS range (guided to +14-17% growth) and at the lower end of the same restaurant sales range (guided to approximately +2% growth, down from its prior +2-3% guided range). While this dynamic is unsustainable, it puts a premium on sustained management of cost efficiencies and continued strong performance of new units.

Looking at same-store sales trends, there is reason to be concerned by the decline in the GAP-TO-KNAPP which has narrowed significantly for Darden over the past couple of years. Looking at The Olive Garden, on a fiscal year basis, the Gap to Knapp has come down meaningfully from levels sustained throughout much of FY08, FY09, and most of FY10. The second chart below shows the Gap to Knapp for Red Lobster and it is clear to see why many investors view this as DRI’s “everlasting turnaround”. The brand has been struggling for some time, relative to the performance of Olive Garden, and now LongHorn.

President and Chief Operating Officer, Andrew Madsen, emphasized Darden’s wariness of “utilizing deep discounts to combat difficult industry conditions”. It seems to me that the Great Recession may have changed the playing field in such a way that Red Lobster, in its current form, is suffering from structural problems as it relates to today’s Red Lobster customer.

Management talked around this issue during this morning’s call, singling out “price specificity” in its marketing message as being a key driver of traffic at Red Lobster but it is clearly lower prices, a.k.a. discounting, that is driving traffic at the concept.

There was a promotional timing mismatch with Red Lobster’s Endless Shrimp promotion (began two weeks later and was one week shorter than the Endless Shrimp promotion in FY2010), which was altered to “help address the very difficult business conditions”. It is fair to say that the promotion mismatch was a negative year-over-year for Red Lobster. However, at the same time, explicitly stated in management’s explanation of this mismatch and general commentary today is the view that business conditions, year-over-year, are much improved from their “difficult” level of FY2010. It seems that the Red Lobster customer has been rendered an “impaired asset” by the Great Recession and the price elasticity of demand is high relative to other casual dining customers as a result.

In contrast to Red Lobster, The Olive Garden’s environment has improved year-over-year relative to necessary value-driven marketing (only ran 10 weeks of value-oriented, price-point advertising this year versus 18 weeks last year). This was outlined in management’s comments surrounding their wariness of discounting and the same was true for LongHorn as it was for Olive Garden. All in all, I think that the bifurcation between these two brands and Red Lobster, in this regard, underlines the need for management to address the glaring issues with Red Lobster gaining traction with its customer base.

Margin performance in 2QFY11 was strong, thanks to an improvement in food and beverage expense that was attributable to lower food costs offset by negative mix changes related to the company’s promotional offerings strategy. Labor expense declined by 120 basis points thanks to improved productivity and lower turnover, partially offset by higher benefit expense. Management said more than once that with comps turning positive, they expect to see more leverage across the P&L, particularly on the labor cost line.

In terms of outlook, management expressed comfort with their earnings target for the full fiscal year 2011 in spite of same restaurant sales being at the lower end of their embedded range of 2-4%. It is important to note that even with DRI lowering its blended comp guidance to +2%, they might not have lowered the bar enough. A +2% comp for the full year implies a significant uptick in two-year average trends from current levels. Even if I assume a significant acceleration in trends at Red Lobster, combined with continued steady improvements at Olive Garden and LongHorn, I have a hard time getting to +2% for the year. Management said the improved trends should be driven largely by:

An improvement in the overall casual dining environment during its 2HFY11 relative to 1HFY11

An increased benefit at LongHorn from more advertising in 2HFY11

A more balanced YOY promotional marketing schedule in 2HFY11

Improvements at Red Lobster as the concept gains traction from better delivering affordability.

We will have to see how the industry overall fares, but according to Malcolm’s Knapp’s most recently reported November numbers, trends slowed slightly on both a one-year and two-year average basis. And, although comp trends were positive in November at each of DRI’s three largest concepts, two-year average trends slowed across the board from October levels.

Leverage over the labor line was highlighted as a bright spot for last quarter but it is clear that commodity costs will be a determining factor in DRI’s earnings performance for the remainder of FY11. Management forecasts commodity costs to be 1-1.5% higher in 2HFY11 on a year-over-year basis. Specifically, the company guided to flat food and beverage costs as a percentage of sales for the full year. Given that these costs were about 80 bps favorable in 1QFY11 and 10 bps favorable in 2QFY11, the food and beverage expense line will become a headwind for the company on a YOY basis in 2HFY11. In terms of visibility, most of their commodity costs are locked with the exception of beef which is only 25% covered and constitutes 14% of DRI’s food cost basket. Management expressed their intent to extend coverage after the holidays.

Howard Penney

Managing Director

Share

Print

12/21/10 11:15 AM EST

CCL 4Q 2010 CONF CALL NOTES

CCL BEATS REVISED GUIDANCE ON STRONGER NET YIELDS AND CURRENCY. FY2011 GUIDANCE IN LINE WITH CONSENSUS

"Booking trends have continued to improve for both our North American and European brands, particularly for our peak summer season. We are optimistic these positive trends are an indicator of a strong wave season, our heaviest booking period which begins in early January. Given the recent cold weather and snow, particularly in the Northern U.S. and Europe, there is no better time to book a cruise vacation."

- Micky Arison, Carnival Corporation & plc Chairman and CEO

HIGHLIGHTS FROM THE RELEASE

4Q2010 results:

Constant dollar net revenue yields: +3.9% (vs. guidance of 2.5-3.5%)

Gross revenue yields: +1.5%

Net cruise costs (ex. fuel): -1.1% (constant $)

Gross cruise costs: +0.8%

Fuel: +6% to $488/metric ton (YoY) (vs. guidance of $479)

"Since last September, booking volumes continued to be strong and prices for those bookings are higher than last year. At this point in time, cumulative advance bookings for 2011 are at higher prices with slightly lower occupancies versus last year. Based on these booking trends, the company forecasts a 3 to 4 percent increase in constant dollar net revenue yields for the full year 2011."

Local currency EAA pricing are running slightly ahead but occupancies are a little lower

Fleet-wide local currency yields forecast to be up sequentially

3Q2011:

5% increase in capacity: 3.6% in NA and 7.2% in EAA

Early indications are that pricing is up nicely with slightly lower occupancy

NA: 36% in Caribbean, 25% Europe, and 23% in Alaska

EAA brand capacity: 88% in EAA itineraries

Still a lot of inventory left to be sold - and much of the results will depend on the strength of wave season

Q&A

No fuel surcharges any time soon

Newer ships are 20% more efficient on fuel consumption than older ships

Capacity growth in 2011 and 2012--industry wide is about 5%

Combined cruise segment they are going to break into 3 segments - the 3rd is the corporate office and a couple of cruise facilities that they own and operate which will be in cruise support

Booking pace has stayed the same over the last few weeks. They anticipate that the recent cold weather will help their wave bookings but not seeing any impact right now.

See their capacity growing 2-3 ships per year in the intermediate future

Dividend: post financial crisis, their board has become more conservative

Looking for about 2.5% increase in onboard and other revenue spend - with increases throughout the year as the consumer recovers but they are also adding more onboard features to encourage increased spend

Caribbean is holding its own and seems to be getting sequentially better in 2Q2011 vs. 1Q2011

FX is weighted a little more than 2/3rds towards the Euro than the GBP

The recovery potential for premium is a little greater than for the contemporary brands

Norwegian has invested a lot more money in their direct sales program than CCL - their business is so much larger and more diversified that it's not really apples to apples

By the middle of 09', the booking window came back to close to historic levels and hasn't really changed. They will never get too far ahead or behind because they would just adjust their yields. No major changes in cancellations.

Visibility for next year is very similar to last year

South America is doing very well this year after the massive capacity additions last year

Share

Print

investing ideas

Risk Managed Long Term Investing for Pros

Hedgeye CEO Keith McCullough handpicks the “best of the best” long and short ideas delivered to him by our team of over 30 research analysts across myriad sectors.

THE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP - December 21, 2010

As we look at today’s set up for the S&P 500, the range is 11 points or -0.65% downside to 1239 and 0.23% upside to 1250. Equity futures remain range bound in what is expected to be a positive start to trading as the pre-Christmas rally finds further strength. A reduction in tension on the Korean peninsula and supportive comments for the Euro from the Chinese Vice-Premier Wang Qishan looks to be the main catalyst behind today's positive tone. With little in the way of macro headlines expected this session, activity is expected to remain light.

Adobe Systems (ADBE) sees 2011 rev. at least $4.18b, vs est. $4.08b

AOL (AOL) agrees to buy social identity site about me Inc., terms not disclosed

Biogen Idec (BIIB) says it has acquired a unit of Neurimmune, which includes worldwide rights to three preclinical immunotherapy programs

European equity markets moved higher despite Moody's placing Portugal's A1/P-1 ratings on review for possible downgrade as comments from Chinese officials backing European actions so far to tackle its debt crisis and the easing of tensions on the Korean peninsula helped sentiment.

M&A activity was again a focus with little other significant corporate or economic news.

Hong Kong followed China up +1.57% on bargain-hunting, but turnover was low.

Japan rose 1.51%. Fuji Heavywent up 1% on a report it may build a JV factory with Chery Automobile in China.

South Korea moved up 0.83% to a high for the year after North Korea did not retaliate for yesterday’s military exercises.

On higher commodity prices, materials stocks led Australia up 0.75%.

Howard Penney

Managing Director

Share

Print

12/21/10 10:46 AM EST

Hedgeye Editorial: Volatility

Below is a thoughtful response from a Hedgeye subscriber on Volatility in reference to a post we published yesterday titled "Interesting Chart: Complacency and Slowing Global Growth".

---

Please note that I write these comments with the fear of being overly simplistic. If it is deemed to have any value whatsoever, I am happy to discuss further.

Volatility, like many instruments has seasonal factors that influence their market price. In my opinion, it is not easy to take away any meaningful information from short term volatility levels around holiday periods, especially the year end holiday season due to its length of time and social importance in many areas of the world. During this time frame, the increased risk of lower close to close variance coupled with the typically lower intraday volatility creates a much higher risk for volatility traders to hold long options positions.

With regards to the VIX in particular, it has the ability to be very misleading at times due to its short duration. It only looks at a 30 day time frame, and can be highly influenced by market holidays. In short, a typical 30 day period has 22 trading days. Many volatility traders are pricing SPX options with an adjusted number of trading days for the next month, but the VIX calculation is not. Therefore many traders value the current SPX options at higher volatility than the VIX indicates.

In short, I do think volatility is low and there is some level of complacency. However a level of 16 in April does not equate exactly to a level of 16 right now. The volatility term structure, or spread between 30 day and 90 day is still ascending and I would expect the VIX to show an increase in value after the holiday season assuming everything else equal.

-anonymous

Share

Print

12/21/10 09:27 AM EST

R3: WMT, DECK, M, Li-Ning

R3: REQUIRED RETAIL READING

December 21, 2010

RESEARCH ANECDOTES

Last week was the heaviest in history for online sales, with approximately $5.2 billion spent over the seven day period. Four of those days registered sales above $900 million. Not surprisingly, more than 50% of all transactions included a free shipping offer.

A NY-centric blog noted once again that UGG stores continue to have lines wrapped around block at pretty much any hour as Christmas draws closer. While we have observed such lines since late October, it interesting to note that this phenomenon is taking place at all of Manhattan’s locations. This is occurring despite the fact that the sheepskin boots are widely available across other shoe chains in Manhattan, including a whopping 80 locations carrying the brand within several blocks of the 58th and Madison.

According to comScore, computer hardware is the fastest growing online product category for the holiday season, increasing by 25% from Nov 1 through Dec 17. Consumer electronics (+22%), Books/Magazines (+21%), computer software (+16%) and toys (+15%) round out the top five categories. Apparel is noticeably absent from the list.

OUR TAKE ON OVERNIGHT NEWS

Stores Pin Hopes on Holiday Discounts - It’s the holiday homestretch, and stores are betting on deep discounts to propel them to the finish. Retailers are trying to lure the growing constituency of last-minute, channel-shifting, bargain-hunting shoppers. The outlook remains positive, with Customer Growth Partners among the most optimistic research companies, revising its holiday sales projection upward to 8 percent compared with last year, from 5.5 percent just two weeks ago. Profit margins are still a guessing game as retailers promote heavily, with reductions on Wednesday expected to reach 65 percent, from 50 percent at the beginning of the week. Major department stores are said to be planning post-Christmas sales of 75 percent off already-reduced merchandise. It’s clearly easier to be a couch potato or procrastinator this season with the explosion of e-commerce and mobile commerce platforms. Online spending during the holiday period from Nov. 1 through Dec. 17 is up 12 percent versus the year-ago period, according to ComScore. Meanwhile, mobile commerce is expected to grow to $3.4 billion by yearend from $1.4 billion in 2009, a 134 percent increase, according to ABI Research. “Mobile now represents more than 10 percent of our business, whereas 90 days ago it was virtually zero,” said Greg Bettinelli, senior vice president of marketing at HauteLook, a flash sale site. “We released a significant functionality in mid-October, reconfigured our Web site to work better on all mobile devices and relaunched our iPhone app. We’ve seen a huge lift across the board. Consumers can do more because they have the device in their handbag or pocket. This is not a small thing anymore.” <WWD>

Hedgeye Retail’s Take: From our perspective, overall discounting appears to be rational with very little signs of “panic” setting in. Of course things could change over the next 72 hours but the idea of “hope” seems like a stretch given the solid sell-throughs observed so far.

Some Wal-Mart Vendors Question Strategy - The majority of Wal-Mart Stores Inc. suppliers say Chief Executive Officer Mike Duke and his managers aren’t explaining their business plans clearly enough, according to a survey. More than half the 139 suppliers surveyed in a study by recruitment firm Cameron Smith & Associates didn’t agree that “senior leadership is aligned behind a strategic vision that is consistently communicated and well understood by the supplier community.” The Rogers, Arkansas-based group surveyed a small sample of Wal-Mart’s more than 60,000 suppliers. To win back shoppers, Duke and new U.S. stores chief Bill Simon changed tactics this year and began restoring thousands of products removed during the tenure of former merchandising chief John Fleming. The company has weathered six consecutive quarters of declining sales at U.S. stores open at least a year, and Duke, 61, has projected “positive” sales for this period. “They are rather frantically returning to past practices by bringing back products and going after their core low-income shopper,” said Leon Nicholas, Cambridge, Massachusetts-based director at consulting firm Kantar Retail, which works with Wal- Mart suppliers. “The big question for a lot of our clients seems to be, ‘Is this going to work?’ So far, it doesn’t seem to be working.” <Bloomberg>

Hedgeye Retail’s Take:This is not surprising given the customer and even some analysts on the Street are also confused about the company’s strategy. Add in confusion from the vendor community and we still maintain that it will be difficult for WMT to drive a sustainable top-line improvement with only minor tweaks to its merchandising strategy.

Macy's Flagship Bomb Scare - A suspicious package found near the Macy’s Herald Square flagship caused a disruption Monday afternoon when the police closed off Herald Square Plaza and the store’s two Broadway entrances. Macy’s stayed open and was not evacuated. Police cordoned off Herald Square at Broadway from 34th to 35th Streets after receiving a 911 call at 12:38 p.m. regarding a suitcase found in front of the department store. The bomb squad identified the package as a suitcase of clothing, said a police spokeswoman, who added that the area reopened at 2:20 p.m. “We shut down our two Broadway doors at approximately 12:45 p.m. and opened them at 2 p.m. upon NYPD’s direction,” said Elina Kazan, a Macy’s spokeswoman. The Herald Square scare was one of three false alarms Monday in the New York metropolitan area. In the early morning, a section of Terminal A at Newark Liberty International Airport was closed when security officers were said to have found radiation coming from a checked bag. Officials discovered that the radiation came from a computer monitor and the air terminal reopened at about 8:15 a.m. <WWD>

Hedgeye Retail’s Take:Even an hour delay could prove costly for the flagship store which is amongst the highest grossing locations on earth. Importantly, shoppers were not deterred once the doors were re-opened and the mysterious suitcase was declared to be “just a suitcase full of clothes.”

Counterfeit Crackdown - Buoyed by alliances with industry and law enforcement, Immigration and Customs director John Morton said efforts to stifle counterfeit goods — a $600 billion challenge worldwide — are getting the needed muscle to be more effective. “To successfully combat counterfeiting, which really has become an international criminal problem, we’re going to have to have a very strong partnership between industry and government,” Morton said in an interview at ICE headquarters here. “[The brands] understand the problem counterfeiting poses better than anyone else. They know their products well. They know how counterfeiters operate, who the counterfeiters are. Working together, we can have much greater success.” Rising worry over the criminal connections of counterfeiters is giving added urgency to the efforts. Possible links between counterfeiting and terrorism are a major concern, said Morton, who wouldn’t discuss specifics. <WWD>

Hedgeye Retail’s Take: It’s good to see domestic efforts are indeed underway at Customs, but that’s only half the battle. It’s worth noting that VF’s management highlighted when it comes to international policing efforts, companies and branded apparel manufacturers typically pool resources in order to address counterfeiting more efficiently. The reality is however, that it simply doesn’t make sense economically to chase smaller players – a concerning fact when considering that might in fact include terrorists.

Beiersdorf to Sell Its Juvena and Möller Brands - Beiersdorf AG will sell its Juvena skin care brand and Marlies Möller hair care line to Austria’s Troll Cosmetics GmbH. Terms of the deal were not disclosed. The announcement Monday came in the wake of a reduced earnings outlook for 2010 that was reported earlier this month by Beiersdorf, the maker of Nivea, Eucerin and La Prairie. Personnel and strategy changes, including the reduction of its makeup business, are also being implemented. Beiersdorf stated it will focus its selective market resources on La Prairie. Juvena and Marlies Möller are managed by Beiersdorf’s Switzerland-based La Prairie Group. “Selling the two brands will allow Beiersdorf to focus its resources within the selective market on developing La Prairie, the global premium skin care brand,” stated Thomas-B. Quaas, chairman of Beiersdorf’s executive board. <WWD>

Hedgeye Retail’s Take: Apparently there is another acquirer aside from Coty in what is quickly becoming the most active industryfor M&A.

Zooey Deschanel Sues Steven Madden- Zooey Deschanel and Steven Madden Ltd. have broken up before even getting started. Deschanel, a darling of indie romantic comedies, has sued the shoe specialist for failing to pay her at least $1.5 million for a planned Zooey shoes and accessories brand. In the lawsuit, filed Friday in Los Angeles County Superior Court, the actress, model, singer and songwriter, who wanted to add a fashion credit to her résumé, said the company orally agreed to manufacture, advertise and sell the brand worldwide for as long as two years. The lawsuit alleged that Madden balked at the agreement to move forward with the brand in October and refused to compensate Deschanel. About three months before, the court documents allege that Madden approved a $2 million up-front payment to Deschanel in order to use her name and likeness, plus a 5 percent domestic royalty fee and a 4.5 percent international royalty fee, before reducing the up-front amount to $1.5 million with her consent. The lawsuit said Deschanel didn’t seek or obtain competing corporate sponsorships because of her expectation that Madden would market the Zooey merchandise. She was tapped by Coty Inc.’s Rimmel cosmetics brand in March to be a brand ambassador. In October, Deschanel spoke to WWD about her relationship with Rimmel, saying: “I want to be associated with products that are accessible for everyone.” Steven Madden Ltd. did not respond to requests for comment.<WWD>

Hedgeye Retail’s Take: The young actress should chalk this one up as a learning experience and move on – last I checked, the good ol’ verbal agreement hasn’t held up in court in a very very long time.

Li Ning's Orders Weaken - Li Ning Co. said orders for the second quarter of 2011 have fallen 7% in footwear and 8% in apparel. Both apparel and footwear products saw their average retail prices increase by more than 8%. As a result, total order value, based on tagged retail prices, was maintained at the same level as last year. After taking into account the impact by the Group's wholesale discount for distributors, total order value in sell-in terms declined by 6% compared to the same period last year. "With regard to the results of this Trade Fair, we have established the view that, the retail environment for the sporting goods industry this year is faced with heavy pressure. On one hand, the previous growth model of heavy reliance on store openings by the sub-distributors is no longer sustainable; on the other hand, operating costs at the retail level are fast escalating. Given this environment, the operations of the Group's independent distributors were inevitably affected. Their forecasts for growth in the coming year had become more conservative," said Zhang Zhiyong, CEO of Li Ning. <SportsOneSource>

Hedgeye Retail’s Take: Door growth has provided a limited growth opportunity for athletic brands for a couple years now. In fact, the passive nature of this comment is a bit startling, if not telling. Domestic players certainly aren’t going to roll over so for a brand looking to make inroads to the U.S. market by gaining share, it better be ready to get on offense.

Share

Print

real-time alerts

real edge in real-time

This indispensable trading tool is based on a risk management signaling process Hedgeye CEO Keith McCullough developed during his years as a hedge fund manager and continues to refine. Nearly every trading day, you’ll receive Keith’s latest signals - buy, sell, short or cover.

Thank You!

Your request has been received

You have been added to our list and will receive an email shortly.

If you do not receive an email, please check your spam filter, and then email
support@hedgeye.com.
By joining our email marketing list you agree to receive emails from Hedgeye. This is a distinct and separate service form any of our paid service products. You may unsubscribe at any time by clicking the unsubscribe link in one of the emails.